Question 1

Do most distributions made by a partnership require a Sec.751 calculation?

Accepted Answer

No.Many current distributions are made pro rate to all partners,so Sec.751 is not involved.Even if the distribution is not pro rate,the distribution often does not create an exchange of an interest in Sec.751 assets for an interest in other assets.This exchange happens only when (1)the partner is reducing his or her overall interest in the partnership,or (2)an explicit agreement provides that the distribution results in a partner giving up all or part of his or her interest in some asset(s)maintained by the partnership.

Question 2

Derrick's interest in the DEF Partnership is liquidated when his basis in the interest is $30,000.He receives a liquidating distribution of $20,000 cash and inventory with a basis of $8,000 and an FMV of $30,000.Derrick will recognize

Accepted Answer

A)  no gain or loss.
B)  $2,000 capital loss.
C)  $2,000 ordinary loss.
D)  $10,000 capital loss and $20,000 ordinary loss. B

Question 3

The total bases of all distributed property in the partner's hands following a nonliquidating distribution is limited to

Accepted Answer

A)  the partner's predistribution basis in his partnership interest.
B)  the FMV of the property distributed.
C)  the partnership's bases in the distributed property.
D)  the predistribution FMV of the partner's partnership interest. A

Question 4

Identify which of the following statements is true.

Accepted Answer

A)  If a partner sells property received in a partnership distribution for a gain and the property was inventory in the hands of the distributing partnership,the partner will always recognize ordinary income.
B)  The primary purpose of Sec.751 is to prevent partnerships from converting capital gains into ordinary income.
C)  Unrealized receivables include rights to payments on the sale of a capital asset.
D)  All of the above are false.

Question 5

Ed receives a $20,000 cash distribution from the EV Partnership,which reduces his partnership interest from one-third to one-fourth.The EV Partnership is a general partnership that uses the cash method of accounting and has substantial liabilities.EV's inventory has appreciated substantially since it was purchased.What issues should Ed consider with regard to the distribution?

Accepted Answer

The answer of Ed receives a $20,000 cash distribution from...

Question 6

Tony sells his one-fourth interest in the WindyCity Partnership to Bill for $100,000 cash when the partnership's assets are as follows:
  
The partnership has no liabilities on the sale date.Tony's basis in his partnership interest on the date of the sale is $60,000.What is the allocation of Tony's gain to the assets received?

Accepted Answer

The answer of Tony sells his one-fourth interest in the...

Question 7

The STU Partnership,an electing Large Partnership,has no passive activities and reports the following transactions for the year: net long-term capital losses $50,000,Sec.1231 gain $60,000,ordinary income $20,000,charitable contributions $15,000,and tax-exempt income $2,000.How much will be reported as ordinary income to its partners?

Accepted Answer

A)  $5,000
B)  $17,000
C)  $20,000
D)  $22,000

Question 8

Identify which of the following statements is false.

Accepted Answer

A)  A sale or exchange of at least 50% of the capital and profits interest in a partnership within a 12- consecutive-month period will terminate the partnership and end all of the partnership's elections.
B)  When using the 50% rule to terminate a partnership,if an interest is sold more than once during the 12-month period,each sale is counted separately.
C)  A partner's individual income tax return,under some circumstances,may include the results of partnership operations for a period exceeding 12-months.
D)  When several different transfers are made during a 12-month period,the partnership termination occurs on the date of the transfer that first crosses the 50% threshold.

Question 9

A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form.

Accepted Answer

A) True 
 B)False

Question 10

For Sec.751 purposes,"substantially appreciated inventory" means property held for sale to customers whose market value exceeds its adjusted basis.

Accepted Answer

A) True 
 B)False

Question 11

If a partner dies,his or her tax year closes

Accepted Answer

A)  on the date of death.
B)  on the day after death.
C)  on the day before death.
D)  on some other date.

Question 12

Two years ago,Tom contributed investment land with a basis of $50,000 and FMV of $62,000 to the RST Partnership.This year,Tom has a basis in his partnership interest of $53,000 when he receives a current distribution of $14,000 cash and inventory with a basis of $35,000 and FMV of $52,000.(There is no Sec.751 exchange in connection with the inventory distribution. )The partnership continues to hold the land Tom contributed.How much gain (if any)must Tom recognize as a result of this distribution?

Accepted Answer

The answer of Two years ago,Tom contributed investment land with...

Question 13

Danielle has a basis in her partnership interest of $12,000.She receives a current distribution of $8,000 cash and equipment with a basis of $7,000.There is no potential gain under Sec.737.What is her basis in the equipment?

Accepted Answer

A)  $0
B)  $4,000
C)  $7,000
D)  none of the above

Question 14

The TK Partnership has two assets: $20,000 cash and a machine having a $28,000 basis and a $40,000 FMV.The partnership has claimed $16,000 in depreciation on the machine since its purchase.If the machine is sold for its FMV,would TK Partnership have an unrealized receivable item?

Accepted Answer

The answer of The TK Partnership has two assets: $20,000...

Question 15

Jerry has a $50,000 basis for his interest in JJ Partnership before receiving a current distribution consisting of $8,000 in money,accounts receivable having a zero basis to the partnership,and land having a $28,000 basis to the partnership.What is Jerry's basis in his partnership interest after the distribution?

Accepted Answer

The answer of Jerry has a $50,000 basis for his...

Question 16

Under the check-the-box rules,an LLC with more than one member is taxed as a partnership unless it elects to be taxed as a corporation.

Accepted Answer

A) True 
 B)False

Question 17

Patrick purchased a one-third interest in the PPP partnership for $600,000.At the time of the purchase,the partnership had a 754 election in effect and its only asset was land with a basis of $1,500,000.This year,PPP sells the land for $1,800,000.What is Patrick's recognized share of the gain on the sale of the land?

Accepted Answer

A)  $0
B)  $100,000
C)  $300,000
D)  none of the above

Question 18

The sale of a partnership interest always results in capital gain or loss rather than ordinary income.

Accepted Answer

A) True 
 B)False

Question 19

Tenika has a $10,000 basis in her interest in the TF Partnership and no remaining precontribution gain immediately before receiving a current distribution that consisted of $4,000 in money,plastic tubes held in inventory with a $3,000 basis to the partnership and an FMV of $3,375,and drip irrigation pipe held as inventory with a $6,000 basis to the partnership and an FMV of $5,000.What is Tenika's basis for the plastic tubes and drip irrigation pipe?

Accepted Answer

A)   
B)   
C)   
D)

Question 20

Kenya sells her 20% partnership interest having a $28,000 basis to Ebony for $40,000 cash.At the time of the sale,the partnership has no liabilities and its assets are as follows:

Kenya and Ebony have no agreement concerning the allocation of the sales price.Ordinary income recognized by Kenya as a result of the sale is

Accepted Answer

A)  $6,000.
B)  $12,000.
C)  $14,000.
D)  $16,000.

Exam 10: Special Partnership Issues

Do most distributions made by a partnership require a Sec.751 calculation?

Derrick's interest in the DEF Partnership is liquidated when his basis in the interest is $30,000.He receives a liquidating distribution of $20,000 cash and inventory with a basis of $8,000 and an FMV of $30,000.Derrick will recognize

The total bases of all distributed property in the partner's hands following a nonliquidating distribution is limited to

Identify which of the following statements is true.

Identify which of the following statements is false.

A limited liability company is a form of business entity that combines the legal benefits of the corporate form with the tax benefits of the partnership form.

For Sec.751 purposes,"substantially appreciated inventory" means property held for sale to customers whose market value exceeds its adjusted basis.

If a partner dies,his or her tax year closes

Danielle has a basis in her partnership interest of $12,000.She receives a current distribution of $8,000 cash and equipment with a basis of $7,000.There is no potential gain under Sec.737.What is her basis in the equipment?

The TK Partnership has two assets: $20,000 cash and a machine having a $28,000 basis and a $40,000 FMV.The partnership has claimed $16,000 in depreciation on the machine since its purchase.If the machine is sold for its FMV,would TK Partnership have an unrealized receivable item?

Under the check-the-box rules,an LLC with more than one member is taxed as a partnership unless it elects to be taxed as a corporation.

The sale of a partnership interest always results in capital gain or loss rather than ordinary income.